CHMWarnick’s Larry Trabulsi advises on contingencies and new savings regimens even as business rebounds.
While a director of finance helping in banquets by making omelets sure helps F&B margins look great, at some point this level of omni-tasking is going to come back and bite any operator’s bottom line, says CHMWarnick Managing Director and EVP Larry Trabulsi. But, he added, that is where a lot of owners and operators are still playing today – juggling labor shortages with necessary capex and escalating energy costs, among other things, while trying to find that right mix to sustain a manageable business model along with profitability. It remains a tricky proposition, even with a relatively sunny outlook for 2023.
Yes, Trabulsi said, the skies are sunnier, but margins are still hard to grow. “You want to make sure the expenses don’t get too far out in front of the revenue. And if we do hit some headwinds, you must have contingency plans in place ready to react. I think that’s the theme as we go through 2023,” he said.
That’s going to require a lot of monitoring of budgets and macro-economic conditions, he adds. Hotel Investment Today asked Trabulsi what clients are experiencing and what CHMWarnick is recommending.
Hotel Investment Today (HIT): If jobs remain unfilled and payroll remains lower, doesn’t the saving flow through to the bottom line?
Larry Trabulsi (LT): The big factors in the discussion are things like housekeeping. How many rooms did you clean? And as we’re seeing more hoteliers getting closer and closer to daily room cleaning, that alone can be a significant payroll factor. We’re seeing in a lot of our hotels, whether it’s a union mandate or a customer trend, more rooms are getting cleaned on a daily basis. So, that alone can have a major impact on flow through.
HIT: What are some of the newer ideas to better manage costs?
LT: The consumption piece is the interesting part. We have a better sense now of fixed consumption costs. … A majority of owners have executed on the quick payback savings projects brought on by COVID. Now we’re trying to look at that second layer of payback projects that maybe didn’t pay back in a year, but maybe pay back in two and three years. Pricing to execute has probably gone up, but it is worth re-looking at those because that break even level may have changed dramatically given higher unit costing at this point. We’re looking at ROI projects that maybe in the past and didn’t look so great, but now with higher unit costs are starting to look a lot better.
HIT: Can you offer some examples?
LT: Water consumption for dishwashing, for example. Lighting, and lighting is probably one of the biggest ones, especially all LED lighting. For example, we have parking garage lighting we looked at in the past that now has a payback in 18 months, and it’s a no-brainer. Then you start looking at projects that pay back in two, three and four years, but that was when the unit cost was 1x and is now 1.5x to execute. That project has gone up 20% but there still might be some savings there. We’re putting in a lot of our capital plans right now, even as placeholders, for things like energy saving projects where I am not exactly sure what the costs are. But I know I want to have a little bit of dry powder to be able to execute on something like that.
“So, we’re sitting here in January of 2023 thinking about how we’re going to execute on a capital project that will start literally 18 to 19 months. It seems crazy that you’re thinking this far out. But this way, it makes time an ally versus an enemy.”
Larry Trabulsi
HIT: Are there any new opportunities for savings that maybe weren’t as obvious last year or last couple of years?
LT: The automation piece certainly is still out there. I was at a resort in Florida over the Christmas break and saw robots mowing lawns. The costs on those sorts of things are starting to come down quite a bit. Things like that are starting to get a little bit more of a second look for back-of-the-house functions.
HIT: How is F&B strategy evolving in 2023?
LT: Maybe hoteliers are not fully back to what they were offering in 2019 and continue to be more thoughtful about that. But you we do have to look at the pricing piece. I think your customers are used to paying more. So, your $15 hamburger is now $18 or more, and people are used to paying for it.
You also have to be thoughtful about the staffing side. If you’re going to open an outlet for a period of time, you must make it worth their while… Hopefully demand increases, but F&B outlet reopening plans must be heavily tied to getting the people that go with it and giving them steady hours.
HIT: Are there any new F&B strategies?
LT: We’ve definitely seen a lot more grab & go – it’s still very relevant… The one area still a bit in the gray is the executive lounge that ties to business travel, which is still hotel by hotel and market by market in terms of its recovery. We see hotels considering reopening their lounges in the second half of the year, but it’s going to depend on volume. If people don’t come back, they’re not going to open them. We are going to budget for it, but that doesn't necessarily mean we’re going to do it... We are seeing branded properties offering F&B credits as an alternative, and that model is working, but there is definitely some grumbling about it.
HIT: How are you advising on capital expenditures?
LT: If you are planning for a renovation in 2023, 2024, 2025, it is important to understand the escalation cost. If you’re thinking 3% to 5% escalation per year it is not the right number. It’s a higher number. So, it’s understanding what that number is for planning purposes. The other part to consider is lead times. Carpet lead times right now are 30-odd weeks. It’s crazy. If you’re not pulling the trigger on your capital items by the end of Q1 2023 you may not be swinging a hammer this year.
So, we’re sitting here in January of 2023 thinking about how we’re going to execute on a capital project that will start literally in 18 to 19 months. It seems crazy that you’re thinking this far out. But this way, it makes time an ally versus an enemy.
HIT: How much more can hoteliers pass these cost increases along to guests?
LT: Everyone sees costs are going up when they travel and realizes that trend will continue… I think that there are some concerns around reaching that inflection point, but people still want to travel, and we are not there yet. On an industrywide basis you may see some leveling out on rate, but that will depend on the business mix. As business travel hopefully continues to come back that may increase occupancy but put a little bit of downward pressure on rate given discount strategies.
But it’s funny, as we looked at our 2023 budgets it was sunny. It was going to be a great year. But you also have these possible headwinds out there with the macro economy and recession… We had the exact same discussion last year and, guess what, people traveled a ton, and it still continues to look strong.